2008 Ryder Scott Reserves Conference Evaluation Challenges in a Changing World “Changing the Rules” A Look at the Responses to the SEC Concept Release John Hodgin-President, Ryder Scott Company
Background Securities and Exchange Commission Concept Release On Possible Revisions to the Disclosure Requirements to Oil and Gas Reserves Summary: “The Commission is publishing this Concept Release to obtain information about the extent and nature of the public’s interest in revising oil and gas reserves disclosure requirements which exist in their current form in Regulation S-K and Regulation S-X under the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission adopted the current oil and gas reserves disclosure requirements between 1978 and 1982. In the decades that have passed since the adoption of these rules, there have been significant changes in the oil and gas industry. Some commentators have expressed concern that the Commission’s rules have not adapted to current practices and may not provide investors with the most useful picture of oil and gas reserves public companies hold.” ”Changing the Rules” 1
Request for Comments Public Notice-December 12, 2007 � www.sec.gov/rules/concept/2007/33-8870fr.pdf End of Period for Comments-February 19, 2008 � www.sec.gov/comments/s7-29-07/s72907.shtml Concept release addressed 15 topical areas of questioning � In addition to the areas identified for comment, the Commission sought any additional input on: � Other issues that respondents chose to address � Benefits and costs relating to investors, issuers and other market participants resulting from the possible revision to the disclosure rules pertaining to petroleum reserves ”Changing the Rules” 2
Change? “If you want to make enemies, try to change something.” Woodrow Wilson Was there a consensus for changing the rules? ”Changing the Rules” 3
4 ”Changing the Rules” Some Change Will Occur Audience Poll
Author’s Disclaimer On Tallying The Results Not all responders provided a clear and concise answer. In certain instances, the author has made the best effort to accurately represent the results, but there may be a hanging chad or two. ”Changing the Rules” 5
SEC Concept Release Oil & Gas Community Responses Domestic E&P Companies US Consultants Anadarko Petroleum Corp (Reference to API Response) Long Consultants, Inc Apache Corp Netherland, Sewell & Assoc, Inc Chesapeake Energy Corp Richard J. Miller & Assoc, Inc Chevron Corp (Reference to API Response) Rose & Assoc, LLP ConocoPhillips (Reference to API Response) Davis Family Energy Partners, LP Denbury Resources Inc International Consultants Devon Energy Corp (Reference to API Response) Brookwood Petroleum Advisors Ltd, Surrey UK ExxonMobil (Reference to API Response) Petroleum Resource Analysts (PRA) International Ltd, Calgary AB Canada Hess Corp (Reference to API Response) Robinson Petroleum Consultants, Inc, Calgary AB Canada Marathon Oil Corp (Reference to API Response) Ross Petroleum Ltd, Nairn UK Murphy Oil Corp (Reference to API Response) TRACS International, Aberdeen Scotland Newfield Exploration Co Occidental Petroleum Corp (Reference to API Response) Questar Market Resources, Inc Individuals O&G Background Southwestern Energy Production Co Dan Olds, PE Ultra Petroleum Corp Derek Ryder, PE, Calgary AB Canada Douglas McBride, PE Edmund Stephens, RE International E&P Companies Fred Ziehe, PE BP Plc (Reference to API Response) Geoff Zakaib, PE, Calgary AB Canada BHP Billiton Petroleum, Australia Raymond Schutte, PE CNOOC, Beijing China Robbin Jones, PE EnCana Corp, Calgary AB Canada Robert Wagner, PE Eni S.p.A. , Milan Italy Sir Philip Watts via Mayer Brown LLP Imperial Oil Ltd, Calgary AB Canada Walter van de Vijver via Akin Gump Strauss Hauer & Feld LLP Nexen Inc, Calgary AB Canada Petrobras, Brazil Petro-Canada, Calgary AB Canada O&G Industry Groups Sasol Limited, Johannesburg South Africa American Association of Petroleum Geologists (AAPG) Shell Oil Co (Reference to API Response) American Exploration & Production Council (AXPC) StatoilHydro ASA, Norway American Petroleum Institute (API) Talisman Energy Inc, Calgary AB Canada Canadian Association of Petroleum Producers (CAPP) Committee for Mineral Reserves International Reporting Standards Total S.A., Paris France (CRIRSCO) Independent Petroleum Association of America (IPAA) Society for Mining, Metallurgy, and Exploration, Inc (SME) Society of Petroleum Engineers (SPE) Society of Petroleum Evaluation Engineers (SPEE) ”Changing the Rules” 6
SEC Concept Release Non-Oil & Gas Community Responses Banking & Finance Federal Governmental Agencies CIBC World Markets Inc, Calgary AB Canada Department of Energy, Office of Policy Energy Information Administration Federal Energy Regulatory Commission Analysts & Rating Agencies Deutsche Bank Equity Research Fitch Ratings Non Industry Participants Moody's Investor Service Ashish Verma, Infosys Consulting, Bangalore, India Kiralynne Schilitubi, Professor of English Choctaw Standard & Poor's Ratings Service Nation Leigh Ann Smother, Law Student Robert Pinkerton Public Accounting & Law Firms Deloitte & Touche LLP Ernst & Young LLP Consumer Groups Grant Thornton LLP Advisory Services American Clean Skies Foundation MIT Center for Energy and Environmental Policy KPMG LLP Research PricewaterhouseCoopers LLP Oil Change International White & Case LLP The Energy LITERACY Project Finance & Accounting Industry Groups Center for Audit Quality, American Institute of CPAs Centre for Financial Market Integrity, Assocn Chartered Financial Analyst Individuals Finance & Acct Background Dan Kelly, CPA Emil Efthimides, Bloomberg Equity Analyst, Morningstar, Inc Portfolio Manager Sigma Capital Management ”Changing the Rules” 7
The Sample Population Tallying the Responses 81 Total Responses Sent to SEC + 11 API Member Companies - 4 API Individual Member Responses 88 Total Sample Population & General Public Consumer Groups, 8, 9% Government Regulatory Community, 3, 3% Finance & Accounting Community, 17, 19% E&P Community, 60, 69% ”Changing the Rules” 8
E&P Community Mix O&G Industry Groups, 9, 15% Domestic E&P, 17, 29% O&G Individuals, 11, 18% Internatnl Consultants, 5, 8% International E&P, 14, 23% US Consultants, 4, 7% ”Changing the Rules” 9
Question #1 SEC- ”Should we replace our rules-based current oil and gas reserves disclosure requirements, which identify in specific terms which disclosures are required and which are prohibited, with a principles- based rule?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 50 44 41 40 31 30 28 20 17 10 8 8 7 7 3 3 2 2 1 1 1 0 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 10
Question #2 SEC- ”Should the Commission consider allowing companies to disclose reserves other than proved reserves in filings with the SEC?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 50 42 40 29 30 27 19 20 17 16 15 10 8 8 7 4 3 3 2 2 1 1 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 11
Question #3 SEC- ”Should the Commission adopt all or part of the Society of Petroleum Engineers-Petroleum Resources Management System?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 53 50 44 40 31 30 20 17 14 10 10 8 6 5 4 3 2 2 2 2 1 0 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 12
Question #4 SEC- ”Should we consider revising the current definition of proved reserves, proved developed reserves and proved undeveloped reserves?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 49 50 41 40 37 30 19 20 17 12 10 8 5 4 3 2 2 2 1 1 1 0 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 13
Question #5 SEC- ”Should we specify the tests companies must undertake to estimate reserves?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 52 50 40 34 31 30 28 20 17 16 10 8 6 3 2 2 1 1 1 1 1 0 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 14
Question #6 SEC- ”Should we reconsider the concept of reasonable certainty?” 90 88 Total # Responses # No Comments # Yes 80 # No 70 60 60 50 42 40 30 27 23 21 19 20 17 16 14 10 8 4 4 3 2 1 1 1 1 0 0 All Responses E&P Community Finance & Accounting Government Regulatory General Public & Community Community Consumer Groups ”Changing the Rules” 15
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